How ITI Small Cap has gone from worst to (almost) best

Summary: Launched in 2020, ITI Small Cap spent its early years at the bottom of the performance charts, badly trailing its benchmark during one of the strongest small-cap rallies on record. Most investors wrote it off. That may have been premature, though. In this piece, we look at how this fund scripted a turnaround in the last three years.

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ITI Small Cap is not a fund many investors talk about. Launched in February 2020, it has largely stayed under the radar despite carrying a respectable three-star rating from Value Research. Its assets under management have crept up only marginally, from Rs 2,474 crore to Rs 2,835 crore, hardly the kind of growth you associate with a fund that has been doing something right.

And yet, that is exactly what it has been doing.

Over the last three years, ITI Small Cap has emerged as the second-best performer in its category, delivering an annualised return of 25.6 per cent, trailing only Bandhan Small Cap Fund. That is a creditable result by any yardstick, made even more remarkable when seen against the fund’s troubled beginnings.

A grim start

Between March 2020 and June 2022, a stretch of two years and a few months, ITI Small Cap was the worst-performing fund in the category. Its annualised return of 13.9 per cent was barely half of the 25.9 per cent delivered by the Nifty Smallcap 250 TRI.

The gap widened painfully in 2021. While the small-cap index surged 59.1 per cent, the fund lagged badly at 34.9 per cent. The following year offered little relief, with underperformance continuing.

Then came 2023, and with it, a sharp change in trajectory.

Since then, the fund has beaten its benchmark in every calendar year and has featured in the top half of the category in two of the past three years. The question, naturally, is what changed.

Reason 1: Stability at the top

The most visible shift was at the fund-manager level. Between launch and August 2022, the fund saw frequent changes, with Pradeep Gokhale, George Heber Joseph, Hetal Gada and Pratibh Agarwal taking turns at the helm. As a result, execution suffered.

Stability finally arrived when Dhimant Shah took charge in August 2022, followed by Rohan Korde co-managing the fund from December of the same year. From that point onwards, performance improved dramatically, with the fund becoming the second-best performer in its category over the next three years.

But was it simply a case of new managers, new luck? Not quite.

Reason 2: Making the most of inherited stock selections

An analysis of the portfolio tells a more nuanced story. Twelve months after Shah and Korde took over, 39 of the fund’s 74 stocks, over half, were inherited from the previous regime. Far from being dead weight, these stocks performed exceptionally well, delivering an average return of 44.2 per cent in the following year, compared with 28.1 per cent for the small-cap index.

Stretch the lens further to the present portfolio, covering a period of 39 months, and the picture holds. The fund still retains 12 stocks picked by the previous regimes. These have generated an annualised return of 36.2 per cent, comfortably ahead of the index’s 20.5 per cent return over three years. And since they have had an average portfolio weight of 16 per cent, their contribution to the turnaround has been meaningful.

The takeaway is important. The previous managers deserve credit for picking some durable businesses, but the current team deserves equal praise for having the conviction to retain them. Resisting the temptation to overhaul a portfolio wholesale can often be harder, and more valuable, than starting afresh.

Reason 3: From churn to consistency

The fund’s early instability showed up in its holdings. Apart from Mayur Uniquoters, no stock had staying power. In other words, no other stock was a permanent fixture in the fund’s portfolio.

Under the current regime, though, things look very different. Twenty stocks have been held continuously for at least three years, signalling a shift from rapid turnover to thoughtful ownership.

Reason 4: Unearthing multibaggers

That patience has paid off. In the last three years, ITI Small Cap identified 18 stocks that delivered more than 200 per cent absolute returns, in effect, tripling investor money. Only Nippon India Small Cap did better.

Here are those multibaggers (returns rounded to one decimal point) that it holds or may have held between October 2022 and October 2025:

For context, between February 2020 and July 2022, the fund had spotted only two such multibaggers. Although the earlier teams had less time for their bets to play out, the contrast is still stark.

Reason 5: Sharper sector calls

The early years lacked a clear sectoral identity. Even though Financials and Capital Goods dominated, it was the Consumer Discretionary and IT bets that disappointed the most.

In recent years, sector allocation has been more deliberate. The fund now runs a lower-than-average exposure to consumer discretionary, 10.8 per cent against the category average of 13.6 per cent. Its IT exposure, which was another spot of disappointment in previous regimes, has also been at a minimum.

Meanwhile, Capital Goods, which was a mixed bag earlier, has turned into a standout, with five stocks from the sector becoming triple-baggers in just three years.

Reason 6: A smarter market-cap mix

Another quiet but important shift has been in market-cap allocation. Before August 2022, the fund ran an overwhelmingly small-cap-heavy portfolio, with small caps averaging 90 per cent, large caps at 6.8 per cent and mid caps at 7.6 per cent.

But since Shah and Co took over, the average large-cap exposure has risen to nearly 10 per cent (which is a 44 per cent jump from earlier), while mid-cap exposure has jumped to 20.5 per cent, a nearly three-fold increase. This reflects both a conscious move towards stability in large and mid-caps, and the natural progression of successful small-cap bets into larger companies. In fact, 13 of the 18 multibaggers are now mid-cap stocks.

The quiet turnaround

ITI Small Cap’s journey is a reminder that early failure does not rule out eventual success. What mattered here was not a dramatic strategy overhaul, but a combination of stability, patience and sensible risk control. For investors willing to look past its messy beginnings, this once-forgotten fund has quietly rewritten its story.

Should you invest in this fund?

Explore Value Research Fund Advisor for a more rounded verdict.

A three-star rating does not automatically rule a fund out of our recommendations. Ratings capture long-term consistency, but real-world investing also demands context—recent strategy changes, portfolio quality, downside protection and how a fund behaves across market cycles.

Which is why Fund Advisor looks beyond the star label to judge whether improvement is structural or cosmetic. It helps identify funds where fundamentals are strengthening, risks are controlled and the strategy is something investors can actually stick with. That nuance often matters more than a single number.

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Also read: Should you invest in a small-cap fund that falls the least?